When Khalaf Al Habtoor laid the cornerstone of the new Metropolitan Palace Hotel in Beirut in mid-January, this groundbreaking ceremony coincided with new initiatives for a regional peace, which is expected to spark a second wave of developments and investments in the land of the cedarsa
It is an important time for Lebanon, the ancient land on the eastern shores of the Mediterranean. Over the last decade, the country emerged from 16 years of civil war and once again became the haven of peaceful coexistence of the Lebanese people, as which it had been renowned throughout the world. The nineties also were the time to rebuild and heal the physical wounds of the war.
A second wave of investment and development has to commence now, in tune with the changing realities of globalisation, regional and international cooperation.
To repair the damage of the past, an ambitious governmental infrastructure reconstruction program was undertaken from 1992 onwards, which changed the face of Beirut profoundly. It was accompanied by private sector initiatives by Lebanese, Arab investors led by Al Habtoor Group, and international investors as well. The confident measures led to business growth from banking to manufacturing, and created a vibrant environment of top-level apartments, hotels, resorts, restaurants and entertainment facilities.
Starting from the mid-nineties, it came to be a regular occurrence that foreign visitors to Lebanon, still bearing an image of the divided, ruptured city, would express their amazement on the speed and achievements of the reconstruction process. Virtually every new ambassador, dispatched to Beirut from another nation, would comment surprised on the achievements, and the international press dwelt on stories of an amazing recovery. The Lebanese themselves, while working to rebuild, had somewhat less time to step back and ponder all the progress the country made. They were realising that reconstruction was only one part of the recovery; new creative initiatives were needed to find a new future for Lebanon under the changed global and regional conditions.
As the nineties drew to a close, Lebanon furthermore was confronted with the freeze, which Israel’s unrelenting hard-line Prime Minister Benjamin Netanyahu had breathed over the regional peace process. The occupation of south Lebanon dragged on, and it was clear that the development of Lebanon would depend on the country’s full liberation, but also on a change of outdated business practices and the removal of corruption and the reorganisation of an inefficient bureaucracy. Thus, the mood in Lebanon dampened a bit, as the first reconstruction phase appeared to run out of steam around 1998.
New optimism bloomed, cautiously at first, after the election of a new head of state, President Emile Lahoud, in autumn 1998. The first half of 1999 also brought a change of government in Jerusalem, but in its last days, in June 1999, the old Israeli government hit Lebanon with air strikes that seriously damaged the electricity grid. In the second half of last year, the damage was repaired, while the Lebanese economy underwent a period of self-revaluation. At the end of 1999 then, signs for the economic recovery were strengthening. The trade deficit over the 1st nine months of the year decreased by 13.5 per cent from US$4,746m in 1998 to US$4,104m in 1999, the number of new industries over the same period increased by 17.4 per cent from 322 in 1998 to 378 in 1999 (see table 1 below). Many of Lebanon’s most important service industries had regained all capacities needed to be fully competitive on the international arena.
At the beginning of the new millennium, Lebanon is looking forward to the end of two decades of occupation in the south, with final implementation of UN resolution 425 and significant progress in achieving a peace between Syria and Israel and reaching a solution for the Palestinian problem.
The present moment is thus ideally suited to account for the progress achieved so far, and take stock of the values Lebanon brings into its next phase of development, which is coming underway.
First Impressions Count: Solidere
The first result of the reconstruction and hallmark of the new Beirut is the downtown, also known as Solidere district. It is linked with the modern, well functioning airport that will be fully completed in June 2000 and would have cost more than US$500m, via a highway that makes Beirut’s parliament square and budding financial district one of the easiest places in the country to reach.
Even while still incomplete, the central district has firmly declared its character by joining 5,000 years history with the future, emanating a flair that is without parallel in the world. The new united core of the city includes archeological gardens from Phoenician and Roman days and spans all epochs to the 21st century. In recognition of its visionary concept and unique approach, the Solidere project has been chosen as a model urban development project for the Expo 2000, this year’s world exhibition in the northern German city of Hanover.
The Parliament Square and surrounding streets have been restored to their late 19th century charm, the Prime Minister’s palace has been re-established in the Grand Serail, which was considerably enlarged in a careful, historically compatible expansion project. The headquarters for the UN Western Asian ESCWA agency has brought new diplomatic and conferences to the area, where the first shops and restaurants are now again open. The BCD (Beirut Central District) is also under great demand as a residential area, and the Saifi apartments project has a waiting list of applicants.
The success of the project is linked to the incorporation of Solidere as real estate company registered in the Beirut bourse. Ownership of Solidere stock, limited in the beginning, now is fundamentally open to everyone. In 1999, the Solidere stock dropped to US$6, as the change of government brought some difficulties to the process of granting construction permits. In line with growing hopes for peace and ease of bureaucratic processes, the stock climbed some 40 per cent to come back above US$8 at the end of the year. With a view on the real values represented by Solidere, international analysts have suggested that the stock could easily be worth double that in a few years time. If Beirut realises its potential as regional business gateway and tourism hub, a price level of US$18 for the Solidere share is considered reasonable in expression of the downtown real estate value. Solidere’s net income is shown in table 2 below.
Hospitality is not really an industry in Lebanon; it is its second nature. Be it the country’s history as trade nation and trade route, be it the amicable mentality of the people - whatever the explanation might be, the result is the same. Lebanon welcomes its visitors. The pre-war tourism industry, which contributed 20 per cent to the national GDP, is only a hint of the immense potential of Lebanon as regional stopover point, exhibition and conference location, as haven for travellers in search of archeological and cultural treasures, and tourism and recreation destination.
Regional and international hotel chains and major investors have recognised the potential in the Lebanese tourism industry. Metropolitan International, a subsidiary of Al Habtoor Group is leading the way in this direction with its new five Stars Metropolitan Palace in Sin El Fil. The increase in visitor numbers over the last three years proves them right. The number of foreign visitors to Lebanon grew by 13.5 per cent from 1998 to 1999 and expected to rise by 16 per cent from 1999 to 2000 (table 3 below). Among Saudi Arabian holidaymakers, the number who chose Lebanon as their destination grew by 120 percent between 1996 and 1998. An even stronger growth of visitor numbers can be expected to commence with the cessation of hostilities after the liberation of south Lebanon. Over the page, table 4 shows the actual tourists nationality split.
Over the last five years, major hotels have undergone rehabilitation and alliances with international chains, and new hotels have been built. While the hotel district in the Solidere area is the location where many hotels are currently under construction, including the Hilton and the Four Seasons, new hotels are to be found in all parts of Beirut and many locations outside of the capital. Famous projects are planned to be realised within the next three years such as at the Raouche seafront in West Beirut, or the Four Seasons owned by Prince Walid bin Talal.
Beirut’s legendary hotels, the Phoenicia and the Saint George, are located on the rim of downtown and currently undergo the final stages of their restoration. Table 5 over the page shows the planned hotels for the next four years.
Hand in hand with the development of the hotel industry, there is a diversification and expansion in restaurants, shopping and lifestyle scene in and around Beirut. The Hamra quarter in West Beirut and the Kaslik-Jounieh area to the north of the capital had served as outstanding shopping districts until the early nineties. In recent years, Verdun and Achrafieh, both quarters near the centre of Beirut, have evolved into sophisticated and appealing areas for shopping and leisure.
Lebanese cuisine is known as one of the world’s best, and Lebanese restaurants are of course nowhere better than in their home country, but today, the visitor also finds excellent Japanese, Thai, French, Armenian, American, Italian as well as numerous theme restaurants, pubs and cafes in the city. Over the last two years, the restaurant scene in Beirut has seen an overwhelming number of upstarts, and a fair portion of them were weeded out by consumers who made their choices. This process sparked more sophistication and better prices in the market, which had seen a bit of a fast buck mentality in the years before.
Banking: Quality not Quantity
Lebanon never was an easy location for manufacturing industries. Rather, the country’s talents were concentrated in the service sector. In this field, the Lebanese banks have been the locomotive of economic growth over the last decade. Banking activity has grown at an average of 25 per cent per year since 1992 regardless of the 16 per cent annual average growth rate in the economic activity. By mid 1999 consolidated assets in the lebanese banking system have grown to LL55.7 trn from less than LL5 trn beginning of 1990. Deposits and profits grew consistently from year to year, but more importantly, the banking industry has succeeded to close the development gap that resulted from the war.
Over four decades Lebanon was proud of its banking secrecy law, and today, although Lebanese banks are not the largest in the region, they count among the most active. Mergers, actively supported by the Lebanese central bank, have narrowed the field down a bit and all-top banks in Lebanon offer a full range of products. Together with Visa International, a network of seven banks undertook the introduction of smart credit cards as a frontrunner in the region and even beyond. The efficiency and guaranteed safety and secrecy of Lebanon’s banks has attracted persistently growing foreign deposits, which aided Lebanon substantially in maintaining a high level of currency reserves and an amazingly strong balance of payments, despite the high need for imports.
A noteworthy development in the financial sector was the drop in Treasury Bill interest rates. The rates, which had peaked beyond 35 per cent in the mid nineties, came down below 15 per cent in late 1999.
Financial and banking services, tourism and hospitality, but also communications, software engineering, entertainment where Al Habtoor group launched Al Habtoor Entertainment in July 1999, Insurance where Al Habtoor Group holds a major share in Dubai National Insurance, media and advertising services are the strong bets for future development and potential cornerstones of Lebanon’s new role in the region. Investments and developments in these sectors are encouraging, and the slowdown in economic growth – the current levels are around one per cent, down from more than seven per cent five years ago – can be a blessing in disguise. Many firms now are motivated to review their spending patterns and rationalise.
The Lebanese economy to a large extent relies on imports of raw materials and finished goods. In the context of lowering the trade deficit and reducing the financial burdens of the reconstruction years, it was good news that imports dropped and exports increased in 1999 as shown in table 6; however, there is no basis to believe that the fundamental dependency on imports will be reversed. Manufacturing and industrial exports will also in future play a minor role for the Lebanese economy, in comparison to its service and tourism industries and role as gateway to introduce and disseminate knowledge, information, services and other goods in the Levant and the whole Arab World.
In some sectors, namely printing, jewellery products and specialised, value added foodstuffs the productive sector of Lebanon has a high reputation and is a successful exporter. A product to increase its market shares in Europe and international markets as far away as Japan was Lebanese wine. The three well established vineyards Chateau Musar, Ksara and Chateau Kefraya have won further international prices for their red and white wines in 1999, and several new winemakers have entered the market last year.
The government is currently stepping up its efforts to motivate more expatriates of Lebanese origin to invest in the country. The gateway function of Lebanon as country with long-standing ties to the Arab World, Europe and the substantial Lebanese immigrants in all parts of the world has often been pointed out. Most recently, the port of Tripoli has been approved by the UN as a new trans-shipment point for goods destined for Iraq, and strong expectations rest on the development of post-embargo trade with Baghdad, but also with Syria, Jordan and the Palestinian Authority Territory in the West Bank and Gaza.
To further improve Lebanon’s ability to serve regional trade needs, the expansion of transportation infrastructure is continuing. Beirut International Airport is in the second phase of its US$600 million development program and shall be equipped to serve 6 million passengers by the end of June 2000. MEA, the national air carrier has now daily flights to the important cities in the GCC countries, and more than one daily flight to London and Paris. European airlines are standing in line to increase the number of their Beirut flights. In 1999, total passenger numbers at BIA increased by more than 10 per cent, and transit air travel even grew by as much as 75 per cent in the third quarter. The duty free area at the airport is under expansion and set to be an important attraction with a special emphasis on tobacco products.
Beirut port is another key element in the transportation strategy. After a US$150 million rehabilitation and expansion of the port, a new container terminal is scheduled to open later this year. It will be managed in a joint venture with the Dubai Port Authority.
Beirut Airport and port have key functions in ESCWA concepts to link planned road and rail infrastructure networks in the Middle East to global transportation.
First segments of the Eastern Mediterranean highway network are to be built along the Lebanese coast to the south and north of Beirut. The construction of the Beirut Peripherique and the Arab Highway to Damascus remain challenges to be mastered, and the Lebanese government has launched plans for a sustainable construction.
The year 2000 was welcomed with great enthusiasm in Beirut, and celebrated with a two week festival that spanned both the Eid Al Fitr holiday and the gregorian new year and brought performers from all five continents to the city’s seaside Corniche. Over the past five years, Lebanon had used the chance to restore and recreate important physical, social and economic structures. It also could identify new obstacles and challenges created by the present era, which differ so much from the sixties and early seventies when the country was a forerunner and leader in regional development in nearly every sector.
As the Lebanese are aware of the astonishing progress made by other Arab countries over the 25 year period in which they themselves suffered war and occupation, they view especially the Gulf with a sense of admiration, mixed with a bit of sad wonderment if Lebanon will be able to catch up with the development there. In that situation, it is a great encouragement to know that private and public investors from the Gulf, such as Al Habtoor Group, express their confidence in the future of Lebanon through investing in varied and diversified sectors of the economy. All signs point to a strong growth, if the nation can focus on its unique potential and develop these new strengths, particularly in the tourism and service realm, over the next four to five years.